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Too many people are buying cars using financial products they do not understand

timharford.com

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Re: Too many people are buying cars using financial products they do not understand

#181

Post by losteric »

agentdrtran wrote: post #148
losteric wrote: post #110

Earlier quoted context omitted.

Call me old fashion, but I think car salesmen ought to make their money off of selling cars instead of exploiting consumer's ignorance of financial tools and more complex math. This is so much more nefarious.

car dealers are like the most common example of this since forever...

Car dealers used to profit from people's emotions and ignorance about the product. That's a reasonable exploitation of ignorance because car buyers should know about the car they're buying.

Today, car dealers sell consumers to banks using cars as bait people. Exploiting people's ignorance of dense financial/legal contracts seems extremely abusive to me.

Re: Too many people are buying cars using financial products they do not understand

#182

Post by losteric »

skookumchuck wrote: post #131
losteric wrote: post #110

Earlier quoted context omitted.

Call me old fashion, but I think car salesmen ought to make their money off of selling cars instead of exploiting consumer's ignorance of financial tools and more complex math. This is so much more nefarious.

When I've bought mortgages, I was required by law to sign a document that says "I have read and understood these loan documents." I've seen many people in the newspaper complaining that they neither read nor understood the terms. At what point do you expect legally competent adults to pay attention to and take responsibility for what they're doing?

Exploiting ignorance is legally fair game, that doesn't make it ethical. At this point dealers are basically just selling consumers to banks.

I would blame the consumers if they could take their contracts home, consult with family, financial experts, etc. But, have you ever been in a sales room? Most people are pressured to sign ASAP and dealers generally refuse to print out contracts until after they're signed.

Re: Too many people are buying cars using financial products they do not understand

#183

Post by repiret »

ghufran_syed wrote: post #112

I feel like there is a natural tension between adults having the right to make their own decisions, and 'protecting' them from making bad decisions. Maybe what we need is a two-part market for financial services, a tightly regulated one where only regulator-approved, simple products can be sold, and one with much looser regulation, but that only those consumers willing to take a financial literacy exam are eligible f…

I feel that there should be two types of contracts in the world

1. Take it or leave it, fine print consumer contracts, which includes most loans. These contracts should very limited in power / heavily regulated.

2. Negotiated contracts, where both parties sign, both parties have the power to negotiate for different terms, both parties have legal representation. These contracts should have very little regulation.

Re: Too many people are buying cars using financial products they do not understand

#184

Post by Theodores »

djmobley wrote: post #11
maxerickson wrote: post #8

Earlier quoted context omitted.

No one buys a car expecting the value to go up so the vehicle market probably won't unravel in a collapse (vehicle debt is also about 1/10 the size of the mortgage market).

At the high-end of the market, lots of people do, in fact, buy cars expecting them to appreciate in value. Manufacturers are increasingly offering limited edition cars to cater to this kind of investment.

These are the very high end vehicles, as seen on the motoring shows with a mention of how you can't buy one because they are all sold. They are sold to the existing customer base, selected customers only. In some way this is like BitCoin in that every one of these vehicles will have some log book back to when it was 'mined from some factory in Northern Italy'. Unlike BitCoin these cars are real things with engineering wonder to them.

We also get told that these 'halo cars' cost the manufacturer 'twice' what they retail at. So the Bugatti creations of the VW group 'apparently' cost far more to research and develop than was recouped over the car sales. The project as a whole being like A380 financing - the R+D never paid off. This 'legend' goes back to the first supercars for the road - the Porsche 959. Even the rebooted Ford F40 was with this same legend.

What is going on here is a genuine collectors market with vehicles actually getting raced, repaired, rebuilt and polished. This is an expensive hobby.

Beneath this market something else is going on and I am sure finance has a lot to do with it. High end SUVs are desirable for people who like such things but they must depreciate faster than I get paid and they don't seem to have the mechanicals to last more than 5-10 years on the roads. Where do all the old Land Rover group luxury products go? Maybe there is some part of Serbia or somewhere that takes all these vehicles and they serve out a long and dutiful life, but I suspect not. The only way I can see these products as viable is if the manufacturer offers the finance to make it so.

Re: Too many people are buying cars using financial products they do not understand

#185

Post by ryan-c »

brianwawok wrote: post #145
eru wrote: post #120

Earlier quoted context omitted.

Why does buying a car in America involve so much (or even any!) negotiation at all? I guess it's a form of price discrimination? I just tried to figure out (via Google) whether it's common in eg Germany---but what I found what mostly only about negotiations for used cars.

Literally, the only things you negotiate in the US are cars and houses. Not groceries nor clothes nor millions of other things. Perhaps a few minor things here or there.. but we pretty much just stick to the basics.

Mattresses are negotiable. I offered to pay cash and they took like 40% off the price. I was kind of dumbfounded.

Re: Too many people are buying cars using financial products they do not understand

#188

Post by cperciva »

I'm not familiar with this particular structure, but it sounds like the sequence of cash flows are:

1. Customer receives car.

2. Customer pays monthly amount based on the prevailing interest rate and predicted depreciation of the car.

3. Customer returns car after X years, at which time the depreciated value of the car along with the payments they've made pays for the car they received X years earlier.

Can someone explain to me how this is functionally different from a fixed-term lease?

Re: Too many people are buying cars using financial products they do not understand

#189

Post by taeric »

tanderson92 wrote: post #161
taeric wrote: post #150

Earlier quoted context omitted.

I asked you the wrong question, then. What, then, is your explanation for why they make these loans?

My explanation is that they've done the math on how more generous financing encourages more people to buy cars, and that the losses they take on the loans is less than the extra profit they make from the additional car sales.

I guess my cynicism has just grown to the point that I feel some industries have settled on never taking a known loss. That is, this seems like it is the easy answer, and is certainly what folks would do in the small. At large, though, I feel like they are able to have other options.

(I fully ack that just because I feel it, does not mean it is the case.)

Re: Too many people are buying cars using financial products they do not understand

#190

Post by [deleted] »

losteric wrote: post #110
skookumchuck wrote: post #100

Earlier quoted context omitted.

I doubt it was silly. He likely offered you a deal that would have lost money if not for the financing.

Call me old fashion, but I think car salesmen ought to make their money off of selling cars instead of exploiting consumer's ignorance of financial tools and more complex math. This is so much more nefarious.

[deleted]
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